Mitchell v. North Carolina Indus. Development Financing Authority, 532

Docket NºNo. 532
Citation159 S.E.2d 745, 273 N.C. 137
Case DateMarch 06, 1968
CourtUnited States State Supreme Court of North Carolina

Page 745

159 S.E.2d 745
273 N.C. 137
373 N.C. 137 George C. MITCHELL, on behalf of himself and
all others of the same or like class, Plaintiff-Appellant,
body politic and corporate, and Wayne Corpening, Director of
the Department of Administration for the State of North
Carolina, G. Andrew Jones, Jr., State Budget Officer for the
State of North Carolina, and G. H. Brooks, State Disbursing
Officer for the State of North Carolina, Defendants-Appellees.
No. 532.
Supreme Court of North Carolina.
March 6, 1968.

Johnson & Gamble, Raleigh, for plaintiff appellant.

Atty. Gen., T. Wade Bruton and Deputy Atty. Gen., Harry McGalliard for Wayne Corpening, G. Andrew Jones, Jr., and G. H. Brooks, defendant appellees.

Herman Wolff, Jr., Raleigh, for North Carolina Industrial Dvelopment Financing Authority, defendant appellee.

SHARP, Justice.

This case, brought to test the constitutionality of the North Carolina Industrial Development Financing Act, does not call into question the actual operation of Authority nor does it involve the validity or tax status of any bond issue, for no bonds have been issued. As the Wisconsin court said in State ex rel. Bowman v. Barczak, 34 Wis.2d 57, 148 N.W.2d 683, 687, 'The case before us involves only a threshold expenditure. It does not go to the pith of the functions or the operations of an industrial development corporation.' The question for decision is whether an initial appropriation of $37,062.00 of tax money from the State's Contingency and Emergency Fund may be made to enable Authority to organize and commence its operations.

N.C.Const. art. V, § 3 provides: 'The power of taxation shall be exercised in a just and equitable manner, For public purposes only, and shall never be surrendered, suspended, or contracted away.' (Emphasis added.) This limitation of taxing power was contained in the Constitution of 1868 and reaffirmed by the vote of the people in 1962 when Article V, § 3 of the Constitution was revised. The power to appropriate money From the public treasury is no greater than the power to levy the tax

Page 750

which put the money in the treasury. Both powers are subject to the constitutional proscription that tax revenues may not be used for private individuals or corporations, no matter how benevolent. Horner v. Chamber of Commerce, 231 N.S. 440, 57 S.E.2d 789. The crucial question, therefore, is whether [273 N.C. 144] Authority was created for a public purpose. If so, it may be activated by the questioned appropriation of tax funds; otherwise not. Britt v. City of Wilmington, 236 N.C. 446, 73 S.E.2d 289.

The initial responsibility for determining what is and what is not a public purpose rests with the legislature, and its findings with reference thereto are entitled to great weight. If, however, an enactment is in fact for a private purpose, and therefore unconstitutional, it cannot be saved by legislative declarations to the contrary. When a constitutional question is properly presented, it is the duty of the court to ascertain and declare the intent of the framers of the Constitution and to reject any legislative act which is in conflict therewith. State v. Felton, 239 N.C. 575, 80 S.E.2d 625; Nash v. Town of Tarboro, 227 N.C. 283, 42 S.E.2d 209; 1 Strong, N.C.Index, Constitutional Law § 10 (1957). The presumption, however, is in favor of constitutionality, and all doubts must be resolved in favor of the act. State v. Furmage, 250 N.C. 616, 109 S.E.2d 563; Wells v. Housing Authority, 213 N.C. 744, 197 S.E. 693. The State's Constitution is a restriction of powers; those powers not surrendered are reserved to the people to be exercised through their representatives in the General Assembly. Therefore, so long as an act is not forbidden, the wisdom of the enactment is exclusively a legislative decision. McIntyre v. Clarkson, 254 N.C. 510, 119 S.E.2d 888 Yarborough v. North Carolina Park Commission, 196 N.C. 284, 145 S.E. 563; Hudson v. City of Greensboro, 185 N.C. 502, 117 S.E. 629. If the use is public, the expediency or necessity for establishing it is exclusively for the legislature. Dennis v. City of Raleigh, 253 N.C. 400, 116 S.E.2d 923; Redevelopment Commission of Greensboro v. Security National Bank, 252 N.C. 595, 114 S.E.2d 688; Nash v. Town of Tarboro, supra; Wells v. Housing Authority, supra; Yarborough v. North Carolina Park Commission, supra.

A slide-rule definition to determine public purpose for all time cannot be formulated; the concept expands with the population, economy, scientific knowledge, and changing conditions. As people are brought closer together in congested areas, the public welfare requires governmental operation of facilities which were once considered exclusively clusively private enterprises, Fawcett v. Mt. Airy, 134 N.C. 125, 45 S.E. 1029, 63 L.R.A. 870, and necessitates the expenditure of tax funds for purposes which, in an earlier day, were not classified as public. Keeter v. Town of Lake Lure, 264 N.C. 252, 141 S.E.2d 634. Often public and private interests are so comingled that it is difficult to determine which predominates. It is clear, however, that for a use to be public its benefits must be in common and not for particular persons, interests, or estates; the ultimate net gain or advantage must be the public's as contradistinguished from that of City of Raleigh, 195 N.C. 223, 141 S.E. 597. City of Raleigh, 195 N.C. 223, 141 N.E. 597.

[273 N.C. 145] 'It has been said that the term 'public purpose' is merely a classification distinguishing objects for which the government is to provide from those which are left to private inclination, interest, or liberality. A private enterprise, on the other hand, is one which is ordinarily pursued by individuals in cultivating the soil, manufacturing articles for sale, dealing in merchandise, and whe various and numerous other activities which enlist individual energy in a complex and advancing civilization. * * * The term 'public purpose,' as used in a constitutional provision that taxes shall be levied for public purposes only, is synonymous with 'governmental purpose' in the broad connotation given the latter term under the modern concept of government and the relation between government and society.' 51 Am.Jur. Taxation § 326 (1944).

Page 751

This Court has, on at least two occasions, quoted with approval the following creed: "If there is any restriction implied and inherent in the spirit of the American Constitutions, it is that the government and its subdivisions shall confine themselves to the business of government * * *.' 38 Am.Jur., Municipal Corporations § 395.' Bobbitt, J., in Dennis v. Raleigh, supra, 253 N.C. at 403--404, 116 S.E.2d at 926; Denny, J. (later C.J.), in Nash v. Town of Tarboro, supra, 227 N.C. at 285, 42 S.E.2d at 211. When we have approved this statement, however, we are back where we started. What is the business of government? To say that it is a proper function of the State to promote the health, safety, morals, and general welfare of the community is quite true, Fawcett v. Mt. Airy, supra, but it is not to decide a particular case. Is it today a proper function of government for the State to provide a site and equip a plant for a private industrial enterprise?

In the interstate competition for industry, an overwhelming majority of the states now authorize the use of industrial development bonds. Although the plans vary in detail, they are basically the same. Local governmental units, or some agency of the state created for this specific purpose, pay for a site and construct a plant with funds derived from the issuance of revenue bonds. The facility is then leased to a manufacturer whose rental payments are used to retire the bonds. When the bonds are paid, the industry, if it so desires, may exercise an option to buy the facility or it may continue to lease it, depending upon its agreement with the lessor. This arrangement enables the manufacturer to expand or relocate without a heavy investment of its own capital. For a history of the inception and growth of governmental aid financing, see Abbey, Municipal Industrial Development Bonds, 19 Vand.L.Rev. 25 (1965); Pinsky, Public Industrial Financing, 111 U.Pa.L.Rev. 265 (1963). See Notes, 59 Col.L.Rev. 619, 629 (1959) & Vand.L.Rev. 621 (1961); [273 N.C. 146] Bridges, State and Local Inducements for Industry, 18 Nat'l Tax J. 1 (1965).

At the time the General Assembly passed the Act, it declared in Resolution No. 52, that it considered the Act bad public policy. It explained that it felt compelled to authorize industrial revenue bonds in order to compete for industry with neighboring states which use them. As proof of its reluctance to join the industry-subsidizing group of states, the General Assembly requested the President and the other fortynine states to petition Congress to make the interest on all such bonds thereafter issued subject to all applicable income-tax laws.

'It is the Internal Revenue Code of 1954, not the public credit, which makes industrial development bonds work. * * * The issuing sources of the revenue bonds would be immaterial if the same federal tax benefits could otherwise be obtained.' Note, Industrial Development Bonds: Judicial Construction vs. Plant Construction, 15 U.Fla.L.Rev. 262, 296 (1962). See also Herring & Miller, Florida Public Bond Financing--Comments on the Constitutional Aspects, 21 U.Miami L.Rev. 1, 30 (1966).

Section 103(a)(1) of the Internal Revenue Code of 1954 provides that gross income does not include interest on the obligations of a state, a territory, or a possession of the United States, or of any political subdivision of the foregoing. Under revenue rulings, income from revenue bonds which are obligations of a political subdivision is excluded 'notwithstanding the fact that the bonds were issued to finance the construction of industrial plants for lease to private concerns,'...

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